Accounting majorly involves the preparation of financial reports which form the basis of the organization’s data to rely on when making decisions. Some of the commonly prepared financial reports include budgets, cash books, cash flow statements, income statements, tax reports, and the balance sheet just to mention a few. Almost all the financial statements correlate with each other based on the accounting equation (Henman 1). This paper looks at the application of the balance sheet as one of the important financial statements.
How the use of a balance sheet may be applied to everyday life
The balance sheet is an important financial statement as it shows how much the organization is worth at a specific date by indicating its financial position. This is shown by giving a list of the assets, liabilities, and capital equity that the organization has (Henman 1). The application of the balance sheet in everyday life is evident in several ways. For one, a balance sheet can be used to show the strengths and capabilities in the financial life of an individual. People who keep balance sheets are in a position to watch every step they take in their lives. For instance, a person can judge whether they are spending too much using their credit cards as opposed to buying in cash. This is because the balance sheet will show the spending of the individual through cash and credit terms. The other important application of the balance sheet in daily life is that it is an indicator of any financial problems that an individual could be undergoing. This is depicted from the balancing figure of one’s assets and liabilities.
How a business manager may benefit from an understanding of this statement
A business manager on the other hand can benefit from understanding the balance sheet in various ways. The business managers can determine the progress of an enterprise through an analysis of the balance sheet. They are also in a position to know how much the business is worth by comparing the assets to the liabilities. For instance, they can determine the paid-out loans before they decide on taking another loan. In addition, they are able to determine if the enterprise is generating profits from the retained earnings figure on the balance sheet and so on.
How an understanding of the balance sheet may be applied to my current or future position
In my current position as a student, understanding the balance sheet is still of great essentiality. This is because it helps me regulate the spending of the little funds that I have in form of pocket money. Through the balance sheet, I am in a position to prioritize my needs so that I tackle the essential ones first, such as buying stationery before purchasing a movie ticket. I am also able to determine if my loans outweigh the money I have in cash and at the bank. That way I know that I am not in good financial status thus taking immediate action to avoid future embarrassments. As for the case of the future, most probably during employment, the same will be applied with the only difference being an increase in the allocated funds as well as expenses. For example, the balance sheet will be of great help in the future when making investment decisions since it helps in the selection of the best investment options. These are just but a few of the benefits that come in hand with the understanding and application of the balance sheet in my current and future positions.
From the above discussion, it is clear that the balance sheet is an important financial statement to almost every person in society.
Henman, Ian. How to Understand Financial Statements. 2006. Web.